China has gone into partial shutdown amid the coronavirus outbreak and immediate measures have been put in place to save lives, find a cure, and prevent the disease from spreading. People have been put either on lockdown or in quarantine. Travel restrictions are being implemented, and thus manufacturing is coming to a grinding halt. The effect of this on businesses not just in China, but around the world, will become more severe in the coming weeks and months. With China being the world’s largest manufacturing economy and exporter of goods, this is bad news. Almost all industries, from fashion and hospitality, to medical equipment and construction, will find their global supply chains greatly impacted. This is particularly true for high-tech and automotive companies who are heavily dependent on China for producing electrical components and vehicle spare parts, because as you know, you can’t build a car with only 99% of its parts.
Supply chain events and disruptions can happen anytime and anywhere. How can events such as the coronavirus outbreak impact your supply chain, and what measures can you put in place to prepare for, and help minimize impact? Here are 8 strategies to help your business stay ahead.
1. Receive updates and monitor current supply chain events
Establishing a regular cadence of receiving news and updates not just on the markets you’re selling into, but also surrounding every aspect of your supply chain is important. Getting alerts on natural disasters and calamities, let’s say for example, within a 5-mile radius of your production site or warehouse, will allow you to stay informed and track the situation. What happens if there’s a fire at one of your supplier’s factories? What if a labor strike erupts at a contractor’s plant? Gain visibility and take action before it’s too late.
Current tariff wars and trade regulations, price fluctuations of commodities, news on a supplier’s financial situation, or a competitor opening a new plant near your manufacturing center can also influence and affect your supply chain. Having the ability to stay informed about these events can help you plan and adjust your business strategy accordingly.
2. Find and maintain alternative suppliers
Most well-run companies have plans for production disruptions, and this includes identifying secondary or alternative suppliers for crucial parts and materials. Even if you don’t manufacture or source directly from China, you may have a supplier who does, so it’s beneficial to have visibility into your tier 2 and 3 suppliers. Maintain a strong relationship and a contingency plan with your suppliers so you can work together when situations like these arise.
3. Have multiple manufacturing sites and labor resources
The Chinese government has extended the Lunar New Year holiday up until February 9th, but even if companies in major cities like Beijing and Shanghai are scheduled to resume business operations this week, factory staffing will be an issue not only because many migrant workers travel from countryside villages to factories located in urban areas, but also due to the quarantine measures that are still in place.
The safety of workers and their families are of the highest priority, and it is expected that most factories will remain closed, and production schedules will need to be adjusted accordingly. Having the ability to monitor and execute manufacturing production plans is important. Tt would be even better to also have alternative production sites to lessen the disruption.
4. Establish team collaboration with suppliers and partners
Having a platform to communicate and collaborate with your teams is important, especially if suppliers and partners are located in different cities around the world. What happens when a plant needs to shut down or evacuation is needed for the safety of employees? Constant communication and transparency provides better access to information and quick mobilization, especially during crisis situations.
5. Consider lead times for new product development
Factories also handle prototyping or manage new product introduction (NPI) stages if a company has a product in development. In this situation, new products scheduled for a Holiday 2020 season launch, depending on the product development lifecycle, could be at risk of being delayed as well.
6. Maintain substitute transportation modes and route options
The majority of the world’s top container lines have reduced calls to Chinese ports, leading to an increase of numbers of blank sailings by 20-30%. Most of these ships are being diverted to nearby ports, including South Korea and Singapore, and these ports are now experiencing a spillover in container capacity.
Producing finished goods is only half the battle. Disruptions can affect your logistics network, from production to warehouse and eventually to its final destination. Hubs and distribution networks may also experience limitations in capacity and availability so that even if you have products ready for the market, they could still get stuck. Having in-transit visibility is crucial so you know where your stuff is, and can change routes or adjust shipments if there is a need. It is important to work with your 3PL and logistics service providers (LSP) to create a contingency plan for alternative routes and other means of transportation.
7. Keep real-time inventory visibility at warehouses
As the crisis has intensified, warehouses across China have already experienced thousands of empty shelves and out of stock situations. With shipments delayed and stuck at ports, being able to monitor current inventory at relevant warehouses and having the flexibility to reallocate and transfer them to other DCs and retail stores based on demand will help minimize out of stock situations. Last mile delivery is very important and can make or break service level standards and customer satisfaction.
Supply chain events and crisis situations can be very costly and expensive. It can make or break not just your supply chain, but also your business. Unplanned production runs, expedited shipments, and out of stock situations can lead to higher operating costs and lower revenues. Because supply chain processes are heavily intertwined, consider building an integrated end-to-end supply chain platform that’s intuitive to your needs, with the ability to incorporate machine learning and predictive analytics.
Learn more about how to Oracle’s supply chain solutions can help you minimize the impact of these unexpected disruptions.